Unemployment Experiment, Forbearance Wanes, Strong Appreciation

The short answer is not really. As you know Pandemic UI Benefits ended nationwide on Labor day, but you may not remember that back in June about half of the states cut it off early, creating a very interesting economic experiment. The thinking of these states was that there are plenty of jobs available but it’s too difficult to compete with federal benefits which amounted to roughly $18 an hour so if you cut them off people will come back to work. This study from the University of Toronto showed that folks who lost benefits in one of these 22 states were 4.4% more likely to get a job through August than states who maintained benefits. Unfortunately for these States, spending was also reduced by a whopping 20% so the early termination kept those extra dollars in fed coffers instead of being spent at local businesses. We can expect to see a similar spending reduction benefits now the benefits have curtailed nationwide.

Rates – moved sideways this week. There was a 20 bps Bond Coupon Rollover Friday end of business which didn’t impact the rate sheet. This phenomenon occurs every month as Mortgage Bonds are finite – they end at 30 years and each month a new 30 year period begins.

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Jobs – the number of individuals filing for unemployment benefits for the first time decreased by 35K to 310K – a post covid low. Approximately 11.9M folks are still receiving benefits throughout all of the programs. Extra benefits, PUA, and Emergency Claims expired on labor day and we will begin seeing the impact in the next couple of reports.

Forbearance – 3.1% of homes with mortgages (only 2/3 of homes have mortgages) or 1.6M borrowers are in forbearance. 25% of these folks are current on their payments. Black Knight reports that 98% of individuals on forbearance have at least 10% equity in their house.

Appreciation – home values are up 18% year over year and increased nearly 2% from June to July. If you owned a home worth $400,000 as of July last year and it appreciated at the nationwide average it would be worth $472,000.

“Home price appreciation continues to escalate as millennials entering their prime home buying years, renters looking to escape skyrocketing rents and deep pocketed investors drive demand. On the supply side, it is also the result of chronic under building, especially of affordable stock. This lack of supply is unlikely to be resolved over the next 5 to 10 years without more aggressive incentives for builders to add new units.”

-Frank Martell
President and CEO of CoreLogic

Mortgage Applications – the Mortgage Bankers Association reported applications to purchase homes remained steady from the previous week and refinances are down 3%. Year over year purchases are down 18% (9% if you have factor cash buyers) and refinances are down 3.6%.

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